PrivatizationReasons for Public OwnershipReasons against public ownershipReasons to PrivatizeSteps to PrivatizationVarious Privatization MethodsMore privatization methodsChallenges for new entitiesProblem for Developing NationsUpdate on OECD countriesPrivatization•The transfer of public functions and resources to the private sector–Involves transfer of operations, management, or ownership•The entry of private entities into activities once reserved for government ownership and control•Does not necessarily involve market liberalization---you can have a privately owned monopolyReasons for Public Ownership•Governmental control of infrastructure for political, social, economic, and defense purposes•Subsidization of other parts of the government•Attainment of universal service goals•Patronage issuesReasons against public ownership•Lack of access to capital markets•Lack of financial and administrative autonomy•Lack of management authority regarding staffing•Lack of pricing and service flexibility•Lack of political and planning independenceReasons to Privatize•Ability to raise cash•Increasing operating efficiencies•Spreading of corporate ownership through stock salesSteps to Privatization•Changes in legal provisions•Corporatization•Separation of telecom operation from postal and other functions•Business organization of telecom operation•Setting up of separate capitalization and also a system of accounts to measure performance•Restructuring of entity to make it more efficient and profitable•Defining the system of regulationVarious Privatization Methods•State enterprise with greater autonomy than a department of the government•State-owned company •Mixed-ownership between state and private sector•Mixed-ownership enterprise that is gradually sold to private interestsMore privatization methods•Agreement between public entity and foreign enterprise, with foreign enterprise having the management control•Build-operate-transfer•Build-transfer-operate•Soft loans•Management contracts•Negotiated fixed price sale•Stock offering (foreign or domestic market)Challenges for new entities•Lack of local knowledge•Foreign ownership restrictions•Incompatible equipmentProblem for Developing Nations•Lack of domestic capital markets•Concessions involved in attracting buyers too burdensome•Loss of national autonomy•Lack of investment in infrastructure by buyers•Outflow of revenue dollarsUpdate on OECD countries•Barriers to FDI–49% limit in Mexico; needs to be cleared by government in Australia; Japan, Norway and Switzerland have restrictions–“golden shares”—still in Portugal and Turkey•Government ownerships of shares–Some still retain control of incumbent–Some only minority
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